COURT FILE NO.: 33-2618511
DATE: 2020/11/13
COURT OF ONTARIO,
SUPERIOR COURT OF JUSTICE
(IN BANKRUPTCY AND INSOLVENCY)
AND IN THE MATTER OF THE NOTICE OF INTENTION TO MAKE A PROPOSAL OF EUREKA 93 INC. OF THE CITY OF OTTAWA IN THE PROVINCE OF ONTARIO
AND IN THE MATTER OF THREE RELATED INTENDED PROPOSALS (LIVEWELL FOODS CANADA INC., ARTIVA INC., AND VITALITY CBD NATURAL HEALTH PRODUCTS INC.)
AND IN THE MATTER OF SECTION 192 OF THE CANADA BUSINESS CORPORATIONS ACT, R.S.C. 1985, c. C-44, AS AMENDED, AND IN THE MATTER OF A PROPOSED ARRANGEMENT OF 12112744 CANADA LIMITED AND INVOLVING LIVEWELL FOODS CANADA INC. AND ARTIVA INC.
BEFORE: Mr. Justice Calum MacLeod
COUNSEL: Elliot Birnboim & Michael Crampton, for Dominion Capital LLC (noteholders) Eric Golden for the Proposal Trustee E. Patrick Shea, for the Debtor Corporations Andrew Lenz for PR, creditor Benjamin Blay, for DIP lenders
HEARD: November 13, 2020
DECISION AND REASONS
[1] This hearing was to approve the amended joint proposal of Artiva Inc. and Livewell Foods Canada Inc. as well as the related motion for an arrangement pursuant to the Canada Business Corporations Act. Although there were four proposals originally, the proposals of Eureka 93 Inc. and Vitality CBD Natural Health Products Inc. were defeated, and those corporations are in bankruptcy.
[2] At the conclusion of argument, I indicated that I would approve the proposal and the arrangement, and I signed a formal order. I advised the parties that I would release brief reasons.
[3] I will not repeat the background to the proposal. The facts are set out in a series of decisions culminating in the appeal of the Trustee's disallowance of the claims of Dominion Capital on behalf of the noteholders. See 2020 ONSC 6036. The facts are also set out in the motion record and in the various reports of the Proposal Trustee forming part of the record.
[4] As a consequence of my ruling on the appeal, only part of Eureka 93 Inc.'s debt to Dominion was found to be owing by Artiva and Livewell. This meant that the creditors voting for the proposal had the necessary majority to approve it. Consequently, the Trustee brought this motion for court approval pursuant to s. 58 of the BIA.
[5] While some of the other creditors opposed the proposal at the time of the vote, all but Dominion accept that the proposal passed and no one other than Dominion was opposed to the court approving the proposal.
[6] On behalf of Dominion, Mr. Birnboim requested that the motion be adjourned. The rationale for that was the late delivery of copies of the proofs of claim which he had been demanding to see for some time. Those proofs should have been supplied in a timely fashion and I do not accept Mr. Golden's reason for the Trustee failing to supply them. Nevertheless, I agree with the Trustee and the Debtors that the time for challenging the valuation of the various claims for voting purposes has long expired. I have already dealt with the appeal of the disallowance of Dominion's claim. That would have been the time to challenge the allowance of other claims for purposes of voting. See s. 135 (4) of the BIA. The noteholders may not have had the proofs of claim, but they were well aware of the amounts of those claims and they participated fully in the meetings of the creditors. The various legal proceedings that have already been brought in this matter have delayed consideration of the proposal for long enough.
[7] As a consequence, there is no benefit to adjourning the motion and no prejudice in proceeding. Dominion voted against the proposal, it continues to object to the proposal and Mr. Birnboim is as ready now to address the merits or defects in the proposal as he could possibly be after further review of the proofs of claim.
[8] There were two main objections to the proposal. The first is the argument that the cash flow projections are fanciful and it is unlikely that the proposal can be fulfilled. This is essentially a repetition of the argument which was made at the time I approved the interim financing. Since then, Artiva has sufficiently completed the construction of the greenhouses and acquired the material to raise a crop of cannabis. There is at least a reasonable prospect that proceeding with the proposal will generate positive cash flow. Both the first mortgagee and the DIP lender are prepared to support the proposal in addition to the majority of the creditors. The Trustee continues to believe the proposal is viable. Of course, there is no guarantee, but the alternative of a bankruptcy would see the unsecured creditors realize nothing.
[9] The other concern was the wording of a release in relation to the current directors, officers and others involved with the Debtor Corporations in carrying the proposal forwards. Mr. Poli is a current director, but he is also a former director and a former director of the other bankrupt corporations. The concern was that the guarantee might protect Mr. Poli from liability in other proceedings unrelated to the Artiva and Livewell proposals or, as Mr. Lenz pointed out, insulate him from liability in other ongoing litigation.
[10] Clearly this was not the intent. It would be of concern if language was included in the proposal providing one of the proponents of the proposal with a benefit in other proceedings. I am of the view that the wording of the release could have been drafted with greater precision, but I agree with Mr. Shea that the intent is clear and it is not the role of the court to engage in wordsmithing of a proposal that has been approved by the creditors. In addition, s. 50 (14) of the BIA imposes a limitation on any such release. On the other hand, while I do not consider this issue to be grounds for refusing approval of the proposal or demanding an amendment, the form of the order approving the proposal is entirely within my discretion. For the sake of additional clarity, and to address the concerns of Dominion and Perley-Robertson, I added a paragraph to the draft order submitted by counsel for the Trustee.
[11] In the final analysis, I am satisfied that the proposal has the support of the majority of the creditors, that it is calculated to benefit the general body of the creditors, that the proposal is made in good faith and the proposal is likely to generate a superior recovery for the creditors than would be the case if these corporations were assigned into bankruptcy. I have approved the proposal.
[12] The plan of arrangement under the CBCA is part of the proposal. It has the effect of redeeming and cancelling the shares owned by Eureka '93, of amalgamating the two Debtor Corporations with a newly created solvent corporation and issuing new shares to proponents of the proposal. The objective then is to continue to operate the business of Artiva as a going concern and to pay off the proven claims of the creditors. Those claims will be extinguished by the proposal and converted to certificates secured by the new corporate entity. I have also approved the plan of arrangement.
[13] A formal order was provided to counsel earlier today.
Mr. Justice C. MacLeod
Date: November 13, 2020
COURT FILE NO.: 33-2618511
DATE: 2020/11/13
ONTARIO
SUPERIOR COURT OF JUSTICE
(IN BANKRUPTCY AND INSOLVENCY)
AND IN THE MATTER OF THE NOTICE OF INTENTION TO MAKE A PROPOSAL OF EUREKA 93 INC. OF THE CITY OF OTTAWA IN THE PROVINCE OF ONTARIO
AND IN THE MATTER OF THREE RELATED INTENDED PROPOSALS (LIVEWELL FOODS CANADA INC., ARTIVA INC., AND VITALITY CBD NATURAL HEALTH PRODUCTS INC.)
AND IN THE MATTER OF SECTION 192 OF THE CANADA BUSINESS CORPORATIONS ACT, R.S.C. 1985, c. C-44, AS AMENDED, AND IN THE MATTER OF A PROPOSED ARRANGEMENT OF 12112744 CANADA LIMITED AND INVOLVING LIVEWELL FOODS CANADA INC. AND ARTIVA INC.
BEFORE: Mr. Justice Calum MacLeod
COUNSEL: Elliot Birnboim & Michael Crampton, for Dominion Capital LLC (noteholders) Eric Golden for the Proposal Trustee E. Patrick Shea for the debtors Andrew Lenz for PR, creditor Benjamin Blay, for Interim Lenders
REASONS FOR APPROVING PROPOSAL
Mr. Justice C. MacLeod
Released: October 13, 2020